The monthly figure as measured by the benchmark IPCA index showed a slightly lower drop than the market forecast of a 0.39% decrease, according to economists polled by Reuters.
In the 12 months through August, prices rose 8.73%, well below the 10.07% seen in the immediately preceding 12 months.
Three of the nine groups surveyed posted a negative reading in August, with the biggest drop coming from the transportation category, which retreated 3.37% in the period as fuel prices fell 10.82%.
Last month, state-run oil company Petrobras cut refinery gate gasoline prices by 4.9%, making the fuel the greatest negative impact on the IPCA index. [nL1N2ZR14X}
Services inflation slowed to 0.28% in the month, from 0.80% in July, mainly affected by a 12% plunge in airfare prices.
The improvement in the figures may indicate that the end of monetary tightening is in sight, although analysts say that the central bank may have one more interest rate hike up its sleeve.
"Hawkish comments from the central bank this week support our view that there will be one final 25 basis points interest rate hike (to 14.00%) in the tightening cycle," said William Jackson, Chief Emerging Markets Economist at Capital Economics.
Earlier this week, Brazil's central bank chief Roberto Campos Neto said that policymakers aren't focusing on monetary easing at the moment as the priority remains bringing back inflation to the official target of 3.5%.
(Reporting by Peter Frontini; Editing by Steven Grattan and Jonathan Oatis)
By Peter Frontini
